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End of attention

There are a few rules to keep in mind when you calculate your capital gain or capital loss from real estate, in particular rules relating to:

the costs of owning the real estate, and

cost base adjustments for capital works deductions.

Costs of owning

You do not include rates, insurance, land tax, maintenance and interest on money you borrowed to buy the property or finance improvements to it in the reduced cost base. You only include them in the cost base if:

you acquired the property under a contract entered into after 20 August 1991 (or if you didn't acquire it under a contract, you became the owner after that date), and

you could not claim a deduction for the costs because you did not use the property to produce assessable income - for example, it was vacant land, your main residence, or a holiday home during the period.

Cost base adjustments for capital works deductions

In working out a capital gain for property that you used to produce assessable income - such as, a rental property or business premises - you may need to exclude from the cost base and reduced cost base capital works deductions you have claimed in any income year (or omitted to claim, but can still claim, because the period for amending the relevant income tax assessment has not expired).

You must exclude from the cost base of a CGT asset (including a building, structure or other capital improvement to land that is treated as a separate asset for CGT purposes) the amount of capital works deductions you claimed (or omitted to but can still claim because the period for amending the relevant income tax assessment has not expired) for the asset if:

you acquired the asset after 7.30pm (by legal time in the ACT) on 13 May 1997, or

you acquired the asset before that time and the expenditure that gave rise to the capital works deductions was incurred after 30 June 1999.

However, if you omitted to claim capital works deductions because you did not have sufficient information to determine the amount and nature of the construction expenditure, there is no need to exclude the amount of such deductions from the cost base of the CGT asset.

Reduced cost base

You exclude the amount of the capital works deductions you claimed (or omitted to claim but can still claim because the period for amending the relevant income tax assessment has not expired) from the reduced cost base. However if you omitted to claim capital works deductions because you did not have sufficient information to determine the amount and nature of the construction expenditure, there is no need to exclude the amount of such deductions from the reduced cost base of the CGT asset.

Example: Capital works deduction

Zoran acquired a rental property on 1 July 1997 for $200,000. Before disposing of the property on 30 June 2007, he had claimed $10,000 in capital works deductions.

At the time of disposal, the cost base of the property was $210,250. Zoran must reduce the cost base of the property by $10,000 to $200,250.

Rollover

There is no rollover or exemption for a capital gain you make when you sell an asset and put the proceeds into a superannuation fund, or use the proceeds to purchase an identical or similar asset, or you transfer an asset into a superannuation fund. For example, if you sell a rental property and put the proceeds into a superannuation fund, or use the proceeds to purchase another rental property, a rollover is not available. However, a rollover may be available in special circumstances - in particular for destruction or compulsory acquisition of property (see chapter 7) or marriage breakdown (see chapter 8). However, an asset or the capital proceeds from the sale of an asset may be transferred into a superannuation fund in order to satisfy certain conditions under the small business retirement exemption. For more information about the CGT concessions for small business, see the Guide to capital gains tax concessions for small business 2006-07 (NAT 8384).

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